Firm Cleared of Wrongdoing in Early Retirement Benefits Cut Dispute

Chief U.S. District Judge Donetta Ambrose of the U.S. District Court for the Western District of Pennsylvania rejected the argument that the decision to force David Harrison to separate from service violated the anti-cutback rule of the Employee Retirement Income Security Act (ERISA).

Ambrose ruled that the plan document amendment mandating the separation from service did not dictate how an employer could rehire the employee or that the worker’s benefits be reduced after the rehiring.

Ambrose also found that the plaintiffs had not demonstrated that the benefits lost by Harrison were “accrued benefits” within the meaning of ERISA. Harrison claimed that because of his resignation and subsequent rehiring, he lost earned vacation time, seniority to retain his job during layoffs and a higher pay rate

According to Ambrose’s opinion, Harrison began getting early retirement benefits at age 62 even though he had not separated his service from his employer, T. Bruce Sales of Middlesex, Pennsylvania. When the company discovered that Harrison was receiving early retirement benefits without separating from service, it required Harrison to resign and then rehired him, according to Ambrose.

Under the original terms of the Shopmen’s Local Union No. 527 Pension and Benefit Funds plan, an employee was required to reach normal retirement age at age 65 and also separate from service with a contributing employer to be considered retired and eligible for benefits. Shopmen’s Local Union is the multi-employer plan to which T. Bruce Sales belonged.  

Ambrose’s opinion indicated that the fund trustees passed a motion in 1998 to allow employees age 62 and older to receive early retirement benefits as long as they separated their service from a contributing employer.

The plan was later changed in 1999 to reflect the trustees’ motion. While one plan amendment clearly stated that an employee must separate from service to receive early retirement benefits, another amendment defining the term “retire” stated that an employee must be age 62 with at least five years of service to receive such benefits. Ambrose asserted that plaintiffs had not proven their argument that the separation from service requirement was mistakenly left out of one of the amendments.

Harrison, the fund, and Local 527 filed a lawsuit against T. Bruce Sales alleging that under the plan documents, Harrison was not required to separate his service from T. Bruce Sales before he could begin receiving early retirement payments.

The case is Shopmen’s Local Union No. 527 Pension and Benefit Funds v. T. Bruce Sales Inc.,W.D. Pa., No. 06-545, 2/6/07.